Bottom line: Fewer people are buying new iPhones than Apple and financial analysts would like. There are a variety of reasons why that is the case, but the end result is that there will be more incentives offered in the future.
As Apple is preparing to make adjustments for 2019, CEO Tim Cook has published a letter to investors with first quarter goals. It is yet another way to lower expectations back towards reality.
Wasting no time, Cook throws out revenue and expense numbers followed by the reverberating message that has been echoed across nearly every publication that covers Apple, "our revenue will be lower than our original guidance for the quarter."
Changing market conditions are cited as a major reason why Apple's own estimates have not quite aligned with actual outcomes. China's economy showed the second lowest GDP growth during the second half of 2018 within the last 25 years. As a market where Apple expected to drastically expand within, a weak period stifled any hopes of major growth.
Coupling a low performing second half with immense trade tensions certainly did not help. Whether the reasons were political or purely economic, Apple's stores and channel partners in China saw significantly reduced foot traffic.
Throughout the rest of the world, iPhone owners were still not very interested in upgrading to the latest iOS devices. Cook points to a lack of subsidies offered by wireless carriers as well as more customers buying replacement batteries for their existing phones.
After the whole throttling controversy, it is very telling why Apple hid that fact from consumers for as long as possible. Cook himself has now indicated that allowing customers to get affordable replacement batteries reduces the rate of upgrades.
Onto the positive notes, Apple's wearables division grew nearly 50 percent year-over-year. Apple Watch sales really took off and demand for AirPods remained strong. A new iPad Pro also offered numbers pleasing to investors despite iPhone woes.
Going forwards, Cook notes that Apple will continue to push incentive programs to encourage more iPhone upgrades as well as offering financing programs. Easier and faster trade-in processes are being worked on to try and retain as many existing users as possible.
At the end of the day, Apple is still going to churn out astronomically high sales figures and may even be rewarding investors with record earnings per share figures. This has been a lesson in setting expectations at the appropriate levels, but also a time of learning for Apple that limits on smartphone pricing have been reached for the masses.